Related Articles

Britain is Gazprom’s third largest customer in the EU with Russian gas comprising about 16 per cent of the country’s annual consumption. Germany and Italy are Gazprom’s largest customers in the EU, taking in over 34 billion cubic meters and 22 billion cubic meters of Russian gas annually.

Russia’s decision to cut supplies follows days of strained negotiations in Moscow. Gazprom refused to sign a new contract for 2009 until Ukraine paid a $2 billion debt.

Once Ukraine made moves to pay the debt, however, Gazprom ratcheted up the pressure further, accusing Ukraine of threatening to siphon gas from Europe.

The dispute took on an overtly political tone on Wednesday, with Russian Prime Minister Vladimir Putin warning Ukraine it faced “serious consequences” if supplies to Europe were disrupted.

Most European countries stand better prepared to deal with the crisis than during the similar conflict in January 2006.

When Russia shut the taps to Ukraine during that dispute, there were shortfalls across Europe and it raised questions about Russia’s reputation as a reliable energy supplier.

Ukraine claims it has stored enough gas to match about 35 per cent of its annual consumption.

A Gazprom spokesman said talks had completely broken down, and that Ukraine’s lead negotiator, Naftogaz chief Oleg Dubina, had lost his mandate to conduct negotiations, leaving the Russians without a negotiating partner.

Ukraine has refused to accept the price for gas offered by Gazprom, saying it would pay $201 per thousand cubic meters, instead of the $250 that Gazprom is seeking. It also wants to hike transit fees for the gas that crosses its territory.

Russia began sharply hiking prices to Ukraine in 2006, following the election of a pro-Western government there. The New Year’s showdown has become an annual affair.

But this year’s dispute comes as both Russia and Ukraine stand severely bruised by the global financial crisis. Ukraine is one of the few countries to have appealed to the IMF for help, taking a $16 billion loan in November.

Its political leadership is in disarray, with constant infighting between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.

Russia has also been hit hard by the crisis, and signs of social discontent have begun to grow despite the Kremlin’s success in quashing opposition during its oil-fuelled boom years. Anti-Ukrainian propaganda on state-run television has risen sharply in recent weeks.